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Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Rules and Regulations multiple factor identification, and biometric authentication. The purpose of such disclosures is to provide the prospective customers with sufficient and easily understandable information about the risks to enable them to make informed decisions about whether to invest in or hold digital asset securities through the broker-dealer.
A seventh step the broker-dealer could take is to enter into a written agreement with each customer that sets forth the terms and conditions with respect to receiving, purchasing, holding, safekeeping, selling, transferring, exchanging, custodying, liquidating, and otherwise transacting in digital asset securities on behalf of the customer.18 This step would ensure documentation of the terms of agreement between the customer and the broker-dealer providing custody of the customers digital asset security, which would provide greater clarity and certainty to customers regarding their rights and responsibilities under the agreement with the broker-dealer.

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IV. Commission Position The Commissions position 19 is expressly limited to paragraph b of Rule 15c33 under the Securities Exchange Act of 1934 Exchange Act.
Furthermore, the Commissions position does not modify or change any obligations of a broker-dealer, or other party, to otherwise comply with the federal securities laws, including the broker-dealer financial responsibility rules, obligations regarding proxy voting and beneficial ownership communications, as well as the brokerdealers obligation to become a member of FINRA and to comply with applicable anti-money laundering and countering the financing of terrorism obligations under the Bank Secrecy Act.20 All terms 18 The agreement should contain such provisions and disclosures as are required by applicable laws, rules, and regulations.
19 The Commissions position is an agency statement of general applicability with future effect designed to implement, interpret, or prescribe law or policy.
20 See Heath Tarbert, Chairman, U.S. Commodity Futures Trading Commission, Kenneth A. Blanco, Director, Financial Crimes Enforcement Network, and Jay Clayton, Chairman, Commission, Leaders of CFTC, FinCEN, and SEC Issue Joint Statement on Activities Involving Digital Assets, dated Oct. 11, 2019 reminding persons engaged in activities involving digital assets of their anti-money laundering AML and countering the financing of terrorism CFT obligations under the Bank Secrecy Act, and stating that broker-dealers are required to implement reasonably-designed AML
programs and report suspicious activity, and that such requirements are not limited in their application to activities involving digital assets that are securities under the federal securities laws, available at https www.sec.gov/news/publicstatement/cftc-fincen-secjointstatementdigital assets.

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used in this Commission position will have the definitions set forth in Rule 15c33. Finally, the Commissions position, which will expire after a period of five years from the publication date of this statement, applies only to the exercise of its enforcement discretion with respect to compliance with paragraph b1 of Rule 15c33
under the circumstances set forth below.
During this period, the Commission will continue to evaluate its position, and the circumstances set forth below, on an ongoing basis as it considers responses to the request for comments as well as further action in this area, including any future rulemaking.
After considering the minimum steps that can be taken to mitigate the risks posed by broker-dealer custody of digital asset securities, for a period of five years, the Commissions position is that a broker-dealer in the following circumstances would not be subject to a Commission enforcement action on the basis that the broker-dealer deems itself to have obtained and maintained physical possession or control of customer fully paid and excess margin digital asset securities:
1. The broker-dealer has access to the digital asset securities and the capability to transfer them on the associated distributed ledger technology;
2. The broker-dealer limits its business to dealing in, effecting transactions in, maintaining custody of, and/or operating an alternative trading system for digital asset securities;
provided a broker-dealer may hold proprietary positions in traditional securities solely for the purposes of meeting the firms minimum net capital requirements under Rule 15c31,21 or hedging the risks of its proprietary positions in traditional securities and digital asset securities.
3. The broker-dealer establishes, maintains, and enforces reasonably designed written policies and procedures to conduct and document an analysis of whether a particular digital asset is a security offered and sold pursuant to an effective registration statement or an available exemption from registration, and whether the broker-dealer meets its requirements to comply with the federal securities laws with respect to effecting transactions in the digital asset security, before undertaking to effect transactions in and maintain custody of the digital asset security;
4. The broker-dealer establishes, maintains, and enforces reasonably designed written policies and procedures to conduct and document an 21 17

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assessment of the characteristics of a digital asset securitys distributed ledger technology and associated network prior to undertaking to maintain custody of the digital asset security and at reasonable intervals thereafter;
5. The broker-dealer does not undertake to maintain custody of a digital asset security if the firm is aware of any material security or operational problems or weaknesses with the distributed ledger technology and associated network used to access and transfer the digital asset security, or is aware of other material risks posed to the broker-dealers business by the digital asset security;
6. The broker-dealer establishes, maintains, and enforces reasonably designed written policies, procedures, and controls that are consistent with industry best practices to demonstrate the broker-dealer has exclusive control over the digital asset securities it holds in custody and to protect against the theft, loss, and unauthorized and accidental use of the private keys necessary to access and transfer the digital asset securities the broker-dealer holds in custody;
7. The broker-dealer establishes, maintains, and enforces reasonably designed written policies, procedures, and arrangements to: i Specifically identify, in advance, the steps it will take in the wake of certain events that could affect the firms custody of the digital asset securities, including, without limitation, blockchain malfunctions, 51% attacks, hard forks, or airdrops; ii allow for the brokerdealer to comply with a court-ordered freeze or seizure; and iii allow for the transfer of the digital asset securities held by the broker-dealer to another special purpose broker-dealer, a trustee, receiver, liquidator, or person performing a similar function, or to another appropriate person, in the event the broker-dealer can no longer continue as a going concern and self-liquidates or is subject to a formal bankruptcy, receivership, liquidation, or similar proceeding;
8. The broker-dealer provides written disclosures to prospective customers: i That the firm is deeming itself to be in possession or control of digital asset securities held for the customer for the purposes of paragraph b1 of Rule 15c33 based on its compliance with this Commission position; and ii about the risks of investing in or holding digital asset securities that, at a minimum: a Prominently disclose that digital asset securities may not be securities as defined in SIPAand in particular, digital asset securities that are investment contracts under the
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